Sonic Reports 15% Earnings Per Share Growth in Third Fiscal Quarter

Sonic Reports 15% Earnings Per Share Growth in Third Fiscal Quarter
System-wide Same-Store Sales Increased 5.3%
Business Wire
OKLAHOMA CITY -- June 23, 2014
Sonic Corp. (NASDAQ:SONC), the nation’s largest chain of drive-in restaurants,
today announced results for the third fiscal quarter ended May 31, 2014.
Key highlights of the company’s third fiscal quarter included:
*Net income per diluted share was $0.30 compared with net income per
diluted share of $0.26 in the third fiscal quarter of 2013;
*System-wide same-store sales increased 5.3%;
*Company drive-in margins improved by 40 basis points;
*Ten new drive-ins were opened; and
*The company repurchased approximately $11 million of stock bringing total
repurchases for the year to $69.4million, representing more than 6% of
its outstanding shares as of the beginning of the fiscal year.
“Same-store sales for the quarter were especially strong, driven by our
innovative product news, layered day-part promotional strategy and increased
media efficiency. The multiple initiatives we have in place to increase sales,
profits and new drive-in development are working together nicely to optimize
shareholder value,” said Clifford Hudson, Sonic Corp. CEO. “We have
implemented our new point-of-sale system in all of our company drive-ins and
expect to have the new digital point-of-purchase technology implemented in all
of our company drive-ins by the end of summer. Our multi-year implementation
of these systems in franchisee-owned drive-ins will begin this fall. Going
forward, these technology initiatives to improve operational efficiency and
enhance customer engagement will be an important contributor to increased
sales and profits for our entire system.
Hudson continued, “We are confident our multi-layered growth strategy, which
incorporates same-store sales growth, leverage from higher sales, deployment
of free cash flow, increasing royalty revenues and new drive-in development,
will continue to result in double-digit earnings per share growth in the near
and long term.”
Same-Store Sales
For the third fiscal quarter ended May 31, 2014, system-wide same-store sales
increased 5.3%, which was comprised of a5.3% same-store sales increase at
franchise drive-ins and an increase of 5.2% at company drive-ins.
Financial Overview
For the third fiscal quarter of 2014, the company’s net income increased to
$16.8 million or $0.30 per diluted share, compared with net income of $14.8
million or $0.26 per diluted share in the same period in the prior year,
resulting in earnings per share growth of 15%.
For the first nine months of fiscal 2014, net income totaled $29.1 million or
$0.51 per diluted share compared with net income of $24.5 million or $0.43 per
diluted share for the same period in fiscal 2013. Excluding the items outlined
below, net income and net income per diluted share would have both increased
by 19%.
The following non-GAAP adjustments are intended to supplement the presentation
of the company’s financial results in accordance with GAAP. The company
believes that the presentation of these items provides useful information to
investors and management regarding the underlying business trends and the
performance of the company’s ongoing operations and is helpful for
period-to-period and company-to-company comparisons, which management believes
will assist investors in analyzing the financial results of the company and
predicting future performance.
Nine months ended Nine months ended
May 31, 2014 May 31, 2013
Net Diluted Net Diluted Net Income Diluted EPS
Income EPS Income EPS $ % $ %
Change Change Change Change
Reported – $ 29,091 $ 0.51 $ 24,503 $ 0.43 $ 4,588 19 % $ 0.08 19 %
GAAP
Tax benefit
from the IRS'
acceptance of (484 ) (0.01 ) - -
a federal tax
method change
After-tax loss
from early - - 315 0.01
extinguishment
of debt
Retroactive
tax benefit of
Work
Opportunity - - (743 ) (0.02 )
Tax Credit
("WOTC") and
resolution of
tax matters
Adjusted - $ 28,607 $ 0.50 $ 24,075 $ 0.42 $ 4,532 19 % $ 0.08 19 %
Non-GAAP
Development
During the third fiscal quarter, nine new franchise drive-ins and one new
company drive-in were opened versus five new franchise drive-in openings
during the third fiscal quarter of 2013. Fiscal year-to-date, 22 new franchise
drive-ins have opened versus nine drive-ins in the first nine months of fiscal
2013.
Share Repurchase Update
The company continued to use its existing cash and free cash flow^1 to
repurchase shares. In the third quarter the company repurchased $11 million of
stock and fiscal year-to-date has purchased $69.4 million at an average price
of $19.32 per share representing more than 6% of its outstanding shares.
Fiscal Year 2014 Outlook
The company expects its initiatives to drive 14% to 15% earnings per share
growth in fiscal 2014 as compared to the adjusted non-GAAP earnings per share
for fiscal 2013. The macroeconomic environment and its impact on consumer
confidence, in addition to the pacing of capital investments, may impact
results. The outlook for the fourth fiscal quarter of 2014 anticipates the
following elements:
*Positive same-store sales in the low single digit range for the system;
*15 to 20 new drive-in openings and fewer drive-in closings than in fiscal
2013;
*Company drive-in margins improving between 75 to 125 basis points,
depending upon the degree of same-store sales growth at company drive-ins
and the level of commodity cost inflation over the summer months;
*Selling, general and administrative expense of $17.5 million to $18.5
million;
*Depreciation and amortization expense of $11 million to $11.5 million;
*Net interest expense of approximately $6 million; and
*An income tax rate between 36.5% to 37.5%.
In addition, the outlook for fiscal 2014 anticipates the following elements:
*Capital expenditures of $75 million to $80 million for the fiscal year,
which reflects implementation of a new point-of-sale system and digital
point-of-purchase technology in company drive-ins;
*Free cash flow of approximately $10 million to $15 million for the fiscal
year; and
*The repurchase of $80 million of stock across the fiscal year utilizing
existing cash on hand and free cash flow.
Earnings Conference Call
The company will host a conference call and online web simulcast this
afternoon beginning at 5:00 p.m. ET. The conference call can be accessed live
by dialing (888) 228-5293 or (913) 312-1447 for international callers. A
replay will be available one hour after the call and can be accessed by
dialing (877) 870-5176 or (858) 384-5517 for international callers; the
conference ID is 6253335. The replay will be available until Monday,
June30,2014. An online replay of the conference call will be available
approximately two hours after the conclusion of the live broadcast. A link to
this event may be found on the company’s investor relations website at
http://ir.sonicdrivein.com/.
About Sonic
SONIC®, America’s Drive-In®, is the nation’s largest chain of drive-in
restaurants with more than 3,500 drive-ins serving approximately 3 million
customers every day. Over the past 60 years, SONIC has delighted guests with
signature menu items, more than 1 million drink combinations, friendly service
by iconic Carhops and ongoing support of education through its award-winning
Limeades for Learning® program. SONIC received top honors as America’s “#1
burger quick service restaurant,” ranking in the top 5 of all brands in the
2014 Temkin Experience Ratings report. For more information about Sonic Corp.
(NASDAQ/NM: SONC) and its subsidiaries, please visit sonicdrivein.com.
Customers can also connect with SONIC at facebook.com/sonicdrivein or on
Twitter @sonicdrive_in.
This press release contains forward-looking statements within the meaning of
the federal securities laws. Forward-looking statements reflect management’s
expectations regarding future events and operating performance and speak only
as of the date hereof. These forward-looking statements involve a number of
risks and uncertainties. Factors that could cause actual results to differ
materially from those expressed in, or underlying, these forward-looking
statements are detailed in the company’s annual and quarterly report filings
with the Securities and Exchange Commission. The company undertakes no
obligation to publicly release revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unforeseen events, except as required to be reported under the
rules and regulations of the Securities and Exchange Commission.
The tables that follow provide information regarding the number of company
drive-ins, franchise drive-ins and system drive-ins in operation as of the end
of the periods indicated. In addition, these tables provide information
regarding franchise sales, system growth in sales, and both franchise and
system average drive-in sales and change in same-store sales. System
information includes both company and franchise drive-in information, which we
believe is useful in analyzing the growth of our brand. While we do not record
franchise drive-in sales as revenues, we believe this information is important
in understanding our financial performance since we calculate and record
franchise royalties based on a percentage of franchise sales. This information
also is indicative of the financial health of our franchisees.
^1 Free cash flow is defined as net income plus depreciation, amortization and
stock compensation expenses, less capital expenditures.
SONC-F
SONIC CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three months ended Nine months ended
May 31, May 31,
2014 2013 2014 2013
Revenues:
Company Drive-In $ 111,014 $ 108,445 $ 286,361 $ 285,607
sales
Franchise
Drive-Ins:
Franchise 38,795 35,833 96,598 91,749
royalties and fees
Lease revenue 1,081 1,089 2,682 3,524
Other 1,297 1,267 2,939 2,903
Total revenues 152,187 146,634 388,580 383,783
Costs and
expenses:
Company Drive-Ins:
Food and packaging 32,175 30,776 81,454 80,954
Payroll and other 37,737 37,924 101,108 102,837
employee benefits
Other operating
expenses,
exclusive of
depreciation and
amortization 21,805 21,356 62,049 62,143
included below
Total cost of
Company Drive-In 91,717 90,056 244,611 245,934
sales
Selling, general 17,639 16,943 50,530 48,540
and administrative
Depreciation and 11,022 9,783 31,087 30,447
amortization
Other operating
(income) expense, 128 (142 ) (37 ) (353 )
net
Total costs and 120,506 116,640 326,191 324,568
expenses
Income from 31,681 29,994 62,389 59,215
operations
Interest expense 6,328 7,170 19,095 22,293
Interest income (112 ) (153 ) (373 ) (462 )
Loss from early
extinguishment of - - - 492
debt
Net interest 6,216 7,017 18,722 22,323
expense
Income before 25,465 22,977 43,667 36,892
income taxes
Provision for 8,689 8,184 14,576 12,389
income taxes
Net income $ 16,776 $ 14,793 $ 29,091 $ 24,503
Basic income per $ 0.31 $ 0.26 $ 0.52 $ 0.43
share
Diluted income per $ 0.30 $ 0.26 $ 0.51 $ 0.43
share
Weighted average 54,382 56,005 55,544 56,492
basic shares
Weighted average 55,753 56,845 57,020 57,118
diluted shares
SONIC CORP.
Unaudited Supplemental Information
Three months ended Nine months ended
May 31, May 31,
2014 2013 2014 2013
Drive-Ins in Operation
Company:
Total at beginning of period 388 405 396 409
Opened 1 1 1 1
Acquired from (sold to) - 1 (7 ) 1
franchisees
Closed (net of re-openings) - - (1 ) (4 )
Total at end of period 389 407 389 407
Franchise:
Total at beginning of period 3,119 3,121 3,126 3,147
Opened 9 5 22 9
Acquired from (sold to) the - (1 ) 7 (1 )
company
Closed (net of re-openings) (7 ) (6 ) (34 ) (36 )
Total at end of period 3,121 3,119 3,121 3,119
System-wide:
Total at beginning of period 3,507 3,526 3,522 3,556
Opened 10 6 23 10
Closed (net of re-openings) (7 ) (6 ) (35 ) (40 )
Total at end of period 3,510 3,526 3,510 3,526
Three months ended Nine months ended
May 31, May 31,
2014 2013 2014 2013
($ in thousands) ($ in thousands)
Sales
Analysis
Company
Drive-Ins:
Total sales $ 111,014 $ 108,445 $ 286,361 $ 285,607
Average
drive-in 286 267 738 704
sales
Change in
same-store 5.2 % (1.1 )% 3.0 % 1.5 %
sales
Franchised
Drive-Ins:
Total sales $ 995,259 $ 937,092 $ 2,560,933 $ 2,469,033
Average
drive-in 324 306 828 798
sales
Change in
same-store 5.3 % 0.2 % 3.2 % 0.9 %
sales
System-wide:
Change in 5.8 % 0.1 % 3.4 % 1.0 %
total sales
Average
drive-in $ 320 $ 301 $ 819 $ 787
sales
Change in
same-store 5.3 % 0.1 % 3.1 % 0.9 %
sales
Note: Change in same-store sales based on restaurants open for a minimum of 15
months.
SONIC CORP.
Unaudited Supplemental Information
Three months ended Nine months ended
May 31, May 31,
2014 2013 2014 2013
Revenues (in
thousands)
Company Drive-In sales $ 111,014 $ 108,445 $ 286,361 $ 285,607
Franchise Drive-Ins:
Franchise royalties 38,519 35,756 95,807 91,491
Franchise fees 276 77 791 258
Lease revenue 1,081 1,089 2,682 3,524
Other 1,297 1,267 2,939 2,903
Total revenues $ 152,187 $ 146,634 $ 388,580 $ 383,783
Three months ended Nine months ended
May 31, May 31,
2014 2013 2014 2013
Margin Analysis (percentage of
Company Drive-In sales)
Company Drive-Ins:
Food and packaging 29.0 % 28.4 % 28.4 % 28.3 %
Payroll and employee benefits 34.0 35.0 35.3 36.0
Other operating expenses 19.6 19.6 21.7 21.8
Cost of Company Drive-In sales 82.6 % 83.0 % 85.4 % 86.1 %
May 31, August 31,
2014 2013
Selected Balance Sheet Data (In thousands)
Cash and cash equivalents $ 34,840 $ 77,896
Current assets 99,135 140,722
Property, equipment and capital leases, net 428,432 399,661
Total assets $ 641,359 $ 660,794
Current liabilities, including capital lease $ 71,937 $ 72,930
obligations and long-term debt due within one year
Obligations under capital leases due after one year 23,676 22,458
Long-term debt due after one year 430,037 437,380
Total liabilities 583,822 583,330
Stockholders' equity $ 57,537 $ 77,464
Contact:
Sonic Corp.
Claudia San Pedro, 405-225-4846
Vice President of Investor Relations,
Communications and Treasurer